Why the draft e-commerce rules need a rethink

India needs to implement the existing laws to uphold competitive business while also protecting the consumer and small businesses.

The draft e-commerce rules proposed by the Department of Consumer Affairs were presumably formulated with the intention of safeguarding the consumer and making the online marketplace more competitive.

However, the rules have been met with widespread disapproval. 

Organisations speaking for small businesses as well as those on the side of consumers have asked for the rules to be reconsidered, claiming they place too much of a regulatory burden on small businesses on the one hand, while also depriving the consumer of choice. 

Compliance burden

The rules require e-commerce entities to appoint a grievance officer, a compliance officer, and a nodal person for coordination with law enforcement agencies. These entities must also be able to provide information to government agencies upon request. 

As a paper by PRS Legislative Research points out, this obligation is potentially difficult and financially burdensome for small businesses to meet. The paper uses the example of a small bookshop that also has a website through which customers can order books. “Since such entities will be classified as e-commerce entities as per the definition under the Draft Rules, they will be required to appoint a grievance officer, a nodal person for 24X7 coordination with law enforcement, and a chief compliance officer. These requirements may be onerous for such small entities,” the paper states.

The rules also extend the definition of an e-commerce entity to those entities that are engaged in the fulfilment of such orders. Theoretically, this would include a courier or delivery agency that is used by an e-commerce business but which does not engage in e-commerce itself. It would then follow that the courier service would also be required to appoint the relevant personnel under the rules and register itself with the Department of Promotion of Industry and Internal Trade.

In other words, the burden of complying with these regulations would extend to small businesses even beyond those directly engaged in e-commerce.

Vinod Kumar, President, India SME Forum, told The Hindu BusinessLine that, “the draft amendments increase the compliance burden on e-commerce entities and make the marketplace inaccessible to small and medium businesses who depend on these entities for sustenance. It is important for the government to revisit these rules and detangle the complexities.”

Flash sales and consumer choice

Another sticking point in the rules is the banning of flash sales, which the rules define as “fraudulently intercepting the ordinary course of business using technology means, to allow only a specified seller or group of sellers managed by the e-commerce entity to sell highly discounted goods and services. Further, the sale would be termed a “flash sale” only if it is operational for a pre-determined period, on selective goods or services or otherwise, to draw a large number of consumers.”

However, flash sales are an important source of revenue for small businesses online and to turn off the tap completely would make it harder for them to compete. 

“No one is fundamentally against regulating the sector,” Nirupama Soundararajan, Senior Fellow and Head of Research, Pahle India Foundation, told Hindu BusinessLine. “There is a need for it. However, the current guidelines miss their mark by a significant margin and need to be clarified for the industry.”

At the same time, eliminating flash sales also hurts the consumer, who will have to buy products at a higher price. 

The Print reported on a survey of around 3,500 respondents from across the country by New Indian Consumer Initiate (NICI), a community-owned platform on the new economy. According to the survey, “85% of respondents didn’t want flash sales to be banned.” In addition to this, about 70% of the respondents wanted local products and services to be available online as well.

“Consumer interest isn’t defined only at the consumer end, it needs to include all elements to ensure they get choice, quality and affordable price. Draft amendments don’t fulfil adequate consumer welfare criterion and can’t be called consumer-friendly,” NICI convenor Abhishek Kumar said in a statement.

Pushback from other ministries

There is a possibility that the rules will be modified because it isn’t only the public or businesses that have objected. An exclusive story by Reuters found that other ministries, such as the Ministry of Finance, had also raised objections and described “some proposals as "excessive" and "without economic rationale".

According to the story, in an August 31, 2021, memo, the Finance Ministry’s Department of Economic Affairs wrote, "The proposed amendments are likely to have significant implications/restrictions on a sunrise sector and ease of doing business. Care needs to be taken to ensure that the proposed measures remain 'light-touch regulations."

The article also quotes Suhaan Mukerji, managing partner at India's PLR Chambers, a law firm that specialises in public policy issues, as saying that "The ministry of finance raising such concerns would likely spur a rethink of the policy." 

The Indian e-commerce industry is currently expected to surpass the United States in 2034 and become the second largest e-commerce market in the world after China. To ensure the industry fulfils its potential, it is vital to get the policy right. According to Business India magazine though, if the draft rules are implemented as is, they risk setting India back decades instead. 

“India needs to implement the existing laws to uphold competitive business while also protecting the consumer and small businesses, not bring in new rules to please influential political lobbies,” the magazine states, adding, “Clearly a decent burial for the draft rules will settle the matter.”